Volume Dips, Tariff Deadlines, and a Burning Bulk Carrier

From a 15% Trans-Pacific volume drop to an unclear U.S. tariff deadline, uncertainty dominates the trade landscape. In this week's episode of Supply Chain Secrets, Lars and Caroline unpack alarming CTS data, sharp spot rate shifts, and a dramatic Red Sea attack on a commercial vessel. Will July 9 spark a global trade war—or more mixed messaging? Tune in to understand how shifting demand, container imbalances, and geopolitical flashpoints are reshaping global shipping in real time. 

Transcript

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SPEAKER_01 0:27

Hi everyone, welcome back to the Supply Chain Secrets Podcast. I'm your co-host, Caroline Weaver, and with me is Lars Jensen. Lars, how are you doing?

SPEAKER_02 0:35

Thanks. Calling in from nice and mountainous Germany and Fast.

SPEAKER_01 0:38

That sounds amazing. We just had the 4th of July weekend in the state, so it's been a nice long weekend. Quite rainy here in Austin, but otherwise it was a nice time. Lars, can you catch me up on what has happened over the weekend? What's the latest in the freight industry?

SPEAKER_02 0:53

Oh, we're gonna have an exciting uh podcast here because loads of things have happened. Let's kick off with what uh also just ticked into my inbox here in the last couple of hours. New updated uh global demand data from container trace statistics or all cargo loaded in the month of May. And at a headline glance, global demand was up only 1.8% year in year. That doesn't sound like much, but where it becomes real interesting is if I remove the North American component. So if I take all cargo in all the world except for North America, global demand grew 5.6%, which is nice, decent, solid growth in line with what we have seen for quite a while. And then obviously, North America is the interesting one. Cargo loaded in the month of May, that would all have been cargo that was fully in the throes of the especially US-China trade war. Keep in mind the China-US trade war ended on May 14. From the point where that ended until cargo is actually loaded. Keep in mind CTS measures data when it is loaded. So basically, all of the loaded May data would have been subject to the US-China trade war. And what you then see is April, we already began to see the impact. If you look at Trans-Pacific Eastbound, volumes were down 8% year on year in April. In May, they were down as much as 15% year on year. If you look at the exports North America back to the Far East, it's actually the same pattern. It's also down 15-16% in May. And this is the high-level aggregate CTS data. I don't have the one where they break out China specifically. So keep in mind the rest of Asia would have been exporting as per normal because of the terror force. So a 15% decline on the Trans-Pacific alone to me signals that you're looking at least 25-30% down on the China volume, surely as an effect of the China US trade. So we all knew that it was a massive impact. Now the data are coming in to also show yes, it was actually a major impact while it was uh going on.

SPEAKER_01 2:55

Yeah, that's pretty dramatic. Do you anticipate that it'll continue um you know for June, July to trend downward for the North America volume? Or North America debate?

SPEAKER_02 3:05

Not trend down, but uh, as we also discussed last week, um it seems that we are no longer having a surge on the cards either. We saw that surge in spot rates. We'll look a bit at the spot rates uh in a in a second as well. But that seemed to mainly be cargo that was ready to go, that then got loaded very late May and into June. But US importers right now seem to have changed their minds under more of the perspective, let's move what we need to move, but nothing more than that. That does not give hope for a strong volume uh uh development. So maybe while we are on that topic, what is the latest news and status on the trade war? The objective fact that we know is two days from now, well, less than 48 hours, the executive order that put the force in place comes to an end. And that means when we get to midnight between Tuesday and Wednesday, US East Coast time zone, all the reciprocal tariffs are back and forth in every country. So that ranges from 10% and all the way up to, I believe, the highest ones were 49%. That is what we factually know. What we then also know are the statements that's been coming from the US government over the last few days, starting with Trump back on Friday, stating that on a daily basis he would be sending out letters to 10 to 12 countries as of Friday, which would stipulate what their new tariffs were going to be, and they would be in the range of 10 to 70 percent. Now that 70% would indicate somebody is getting even higher tariffs than what they were back at the reciprocal tariffs. Status as of right now is no letters have been sent out. A later statement from Trump is there will be 12 letters sent, uh, I believe it'll be noon US East Coast time today. Let's see if they go out, nobody knows. Treasury Secretary Scott Besson said that a number of countries would receive these letters. If they don't make trade deals, they'll go straight back to the reciprocal tariffs as of August 1st, which is of course incongruent with the deadline of July 9th. When asked about that, he said that the deadline is not changed. I might be missing something obvious here, but it seems to me the the Treasury Secretary is saying the reciprocals they come back on August 1st, and at the same sentence he's also saying that there's no change to the deadline. Those two things are mutually incompatible. And I can certainly sympathize with US importers being very confused as to what will the actual tariff regime be just two days from now, because that's pretty much up in the air. And just adding a little bit more uncertainty, we had the Trump also tweeting earlier. Well, it doesn't tweet, but on his social media, he was out saying that any country that aligns themselves with anti-American policies of the BRICS countries would face an additional 10% tariff. BRICS be in Brazil, Russia, China, India, South Africa, and uh a handful of other countries that joined here about a year ago. So if importers were looking for more certainty for the tariffs, the last three days have only made that uncertainty even worse, basically. And against that backdrop, I have a hard time seeing US importers go all in and suddenly import a lot of goods on speculation. Because speculation in the tariff game right now, that would be purely playing the casino, it seems.

SPEAKER_01 6:14

Yeah, all of the the current tariff news seems to follow the trend that we've been seeing over the past uh quarter or two, where it's just you're getting all this conflicting information, like trying to keep track of the dates and what's actually going to happen. So if you are like me and you've been reading the news and you're like, what is the date I actually need to pay attention to? And you can't figure it out, I think we're all on the same page here in that we don't really know necessarily. Um we're just gonna have to wait and see what happens later this week. But we'll definitely be reporting on that for you all. Anything else you want to add about the tariffs here?

SPEAKER_02 6:45

No, I think that that's all that's important. I mean, keep in mind the only thing that matters if you're an importer is what is the law. So what are the applicable entries into the customs uh and trade registries? What are the applicable executive orders? There might then be a lot of political noise and rhetoric, but until that makes itself into legal writing, it's just political rhetoric. It doesn't count. Yeah.

SPEAKER_01 7:07

All right. Well, maybe let's shift into talking about where rates are at right now. Can you talk a little bit about that for us?

SPEAKER_02 7:13

Yeah, certainly. I mean, uh rates continue to go down rapidly. We saw that in the NIFI. I mean, because what I'm showing you here is three graphs. You have the blue one, that's the SCFI, the Shanghai Container Freight Index. That's of course a quoted freight index. That's based on quotes given. I have shifted this one three weeks because between the SCFI quotes and until that spot cargo is actually on board a ship, it usually takes roughly three weeks. Then we have the two other curves there, the NIFI spot. So that's cargo that's actually loaded. So we know these spot rates are being paid. The orange line is the rate for a 40-foot container, the green line for a 20-foot container. And we can see how, at least after Chinese New Year, all of these lines are fairly well in alignment with each other. We should then see this massive, massive spike as we're getting into June on the quoted rates, but as we've also talked about in the last few weeks, the actual cargo that got booked are not paying the absolute peak of these quoted rates. So a lot of these quoted rates either didn't lead to bookings, or when they led to bookings, those bookings were renatched upon. And then I fi is now also turning down fairly rapidly. Maybe to see this better, if we switch to the second graph, what I will then show is the difference here in what is paid versus what was in the SCFI quotes. And again, you can see a huge discrepancy early on. A lot of that is Chinese New Year effects. We can say that for a different podcast. But if you look at the period from March basically, until I would say early June, we are hovering roughly around a zero point. So that's fairly okay alignment between what are being quoted out in the market versus what are people actually eventually paying for these containers. As we are then getting into June, we dump into significant negative territory on the 40 footers and a massive negative drop on the 20 footers. Because not only do we see the actual rates paid fall far below the STFI, we certainly also see a major discrepancy between rates paid for 20 and 40 footers. So if we go to the third slide, this is where I'm actually trying to look at what is the difference between 20 and 40 foot. Now, this is purely based on NiFi, which means that this is based on data that is actually paid spot for 20 footers and 40 footers being shipped. And usually a rule of thumb in the trans fat market is that 20 foot rates are about 80% of the 40-foot rate. And at least for the first quarter of this year, yeah, that holds fairly well. Okay, 20 footers are basically at a rate around 80%. And then something fun happens. As the trade war kicks in, suddenly we get to a point where there's actually a higher rate paid for shipped 40 footers. This is not a rate per TEU, this is a rate per container. So we have a period here, March and a good part into April, where actually shippers were paying more to move cargo in 20 footers than they did in 40 footers. This then suddenly took a major nosedive again here in the latest measurement that came out on Friday here on July 4th, all the way down to 60%. So what we have been seeing here in 2025 is a massively unstable market when it comes to the import of 20-foot containers from Asia into the US. Or rather, this is the China rate, sorry. So how the dynamics work in terms of what is the actual impact here of the trade war probably needs a little more digging, but it's very clear that not only have freight rates in themselves become more unstable, but the relationships between 20s and 40s are also a lot more volatile and unstable than we're used to, ranging from again 110%, and then just a few months later all the way down to 60%. This is a fairly extreme deviance between whether you're shipping uh a 20-foot or 40-foot.

SPEAKER_01 11:07

Yeah, agreed. These these are crazy uh differentials to have between the the max and the mins. We did talk about this in previous episodes, but could you maybe summarize why you generally see um the 20-foot are about 80% of what you would pay for a 40-foot. Um and then do you think this trend is different than previous years, or maybe we have to take some time to look into that to compare?

SPEAKER_02 11:31

Yeah, you can say for previous years, we probably need to take some time. Uh the rule of thumb that is about 80%, that has been a rule of thumb for I was about to say uh decades, or at least for a very, very long time. You might think logically, since a 20-footer is half the size of a 40-footer, why is it not just 50%? So this is where a lot of operational practicalities also come in. If I have just one 20-footer, it still eats up space on the ship that I might not be able to fill the other 20-footer. I could also say fine, instead of your 20-footer, I could fill a 40-footer. It takes almost the same amount of time to discharge a 20-footer as a 40-footer. You have different trade imbalances in the 20s and 40s, where most of the US importers actually prefer 40-footers because they got lightweight cargo that's bul uh that's bulky, your usual consumer commodities, whereas US exporters that is heavy agri products. A lot of those prefer 20-footers. So nobody really moves in. You have a different imbalance when you're looking at 20s versus 40s. So a lot of this conspire down to it, it is perfectly reasonable that you're not just paying 50% uh of a 40-foot when you're shipping a 20-foot. They the 80% has been around for, I was about to say, umpteen years.

SPEAKER_01 12:41

Thank you for the explanation. I think that's very clear. In terms of the rates shifting downwards, do you think that's more of a short-term correction, or do you anticipate that maybe continuing for the coming months?

SPEAKER_02 12:53

No, I have a hard time seeing that necessarily being a long-term. I find this to be a very, very extreme movement all of a sudden. I don't have the hard data in terms of where are these containers positioned. It could be a positioning issue. That's basically the only explanation I'd be able to offer without deep diving further into it. Maybe one of the ways to look into it, and also if our listeners want to do it themselves, might be to take a look at the 20 to 40 handling ratio in some of the major, for example, US uh West Coast ports and see has there been any major shifts there to also signal a disturbance in the uh equipment positioning.

SPEAKER_01 13:28

That's a great idea. All right. Anything else here? Maybe we switch gears into the latest on the Red Sea.

SPEAKER_02 13:33

Yeah, let's switch to the Red Sea. Before we go that, just a few added comments. Rates uh at least from the quoted rates out there are still moving up, what's uh coming into Europe? The Europe market is strong. Market down from Asia to East Coast, South America is also rocketing up, what's still very strong. Atlantic rates are holding up firm. Most of this seems to also confirm that the global market is strong. The global market is okay. What's dragging it down is in the main the effects of the US-China trade war. If the US then goes full on again with the trade war with the rest of the world here on July 9th or August 1st, that of course is going to create another major disturbance. Let's keep in mind the trade war with the entire world never really took off. That was only there for a small two-week window, and then we got the tariff pause. So if indeed here on July 9th we now go down the path of a full-on trade war with the entire world, that will certainly have major repercussions on demand flows specifically going into the US.

SPEAKER_01 14:33

Yeah, let's hope hope that we don't end up there, but uh it's not outside of the realm of possibilities. All right, so what what is the latest on the Red Sea? There's been some happenings there.

SPEAKER_02 14:43

Yeah, uh sadly, after having been a dormant conflict, let's put it that way, it uh burst into flame again quite literally over the last 24 hours. The reality is there hadn't been an attack on a commercial vessel in the Red Sea since December of last year. And that's of course why, especially here during springtime, there was a lot of consideration. Were the carriers on the verge of going back through Suez? Then we had the Iran-Israel war that also put a little bit of a dampener on those hopes. And yesterday there was a commercial vessel, a Greek bulk ship, that was attacked in the Red Sea. At least the reports I've seen so far indicates that it was seemingly first attacked by small skiffs that were shooting at it with uh handheld uh firearms and RPGs, and later on was attacked by multiple drone boats. The vessel caught fire, crew has abandoned ship. Fortunately, the crew has been picked up by another merchant ship. I don't know whether this attack, the Greek Volga, has sunk or not. But the reality is, first commercial attack, actually a very successful one. The only thing that strikes me as slightly odd is that the Houthis are always very quick to brag about their attacks. They always call all the attacks successful, whether they are or not. I haven't yet seen any bragging about them about this attack, but I also failed to see who else would stage such an attack in the Southern Red Sea at this point in time. So that turned the conflict very, very hard indeed. A few hours after this attack, there was an aerial strike by the Israeli defense force on Yemen. I I don't think necessarily that those two are directly linked. I would assume the IDF attack would have been planned before the attack on the commercial ship. Not for the first time or second time. The Israelis have done this multiple times over the last year. They staged bombing raids, especially against port facilities, energy facilities in Yemen. And what is perhaps more peculiar this time around is they also bombed the ship the Galaxy Leader. For those that remember, all the way back to the origin of the Red Sea conflict, it started with the Houthis with helicopters, boarded the Galaxy Leader, hijacked the vessels, and dragged it into port. It then held the crew hostage for the better part of a year before the crew was then released. And the vessel was still held in Houthie captivity. That ship has now been bombed by the IDF. The rationale for the IDF, or at least their explanation, is that the Houthis had outfitted the ship with a radar that they were using to direct targeting of vessels in the Red Sea, so they wanted to take that one off the grid. In a sad, ironic way, this conflict seemed to have come full circle now with the bombing also of the Galaxy Leader and sadly again with commercial vessels. With the attack on a commercial vessel in the last 24 hours, we are a long way off seeing the major container line shift all the services back to a sewage routing.

SPEAKER_01 17:27

Yeah, I was about to ask, are there risk adjustments that are being made now? Are there maybe like some of the smaller carriers that had been moving or maybe rethinking that now?

SPEAKER_02 17:35

No, I think the details are still to come up. As far as I'm aware at this point, this ship is Greek-owned, it's Liberian flagged. There are, let me call it, unconfirmed because I haven't been able to confirm it, that this ship has on previous journeys been calling Israel, for example. Whether that was sufficient to prompt the Houthis to attack it, I don't know at this point. But it seems that this is probably in line with the risk profile that has been out there for a long time. So I'm not sure this attack will prompt anyone to change their risk assessments. It would more likely reconfirm, especially the ones that were going around Africa, that their assessment of for now continuing to go around Africa was the right one.

SPEAKER_01 18:16

Well, I guess we'll keep an eye on this. And if there's any, you know, retaliation or things that happen in the coming weeks, we'll definitely be reporting on it. Anything else you want to add today, Lars?

SPEAKER_02 18:26

No, I think we've been through uh all of them. I think we should round up on what I think is on especially most US imported months, the deadline here on July 9th, a day and a half out. Uh we're about to launch back into one of the largest trade conflicts the world has ever seen. 36 hours out. We still don't know whether it will go ahead or not.

SPEAKER_01 18:45

Yeah, a lot of uncertainty. That's our theme of the year.

SPEAKER_02 18:49

Oh yes.

SPEAKER_01 18:50

All right. Well, thanks everyone for tuning in. We'll be back next week with some more updates for you. Until then, have a great week. Be sure to like and subscribe. And uh,